Leased from western companies
Hundreds of planes are stuck in Russia
03/10/2022, 3:30 p.m
More than 500 aircraft of Russian airlines are leased from foreign companies. Western sanctions and a draft law in Russia are making it difficult for lessors to get hold of their machines. Experts fear a protracted legal battle – it’s about ten billion US dollars.
The landlords of hundreds of planes in Russia are unlikely to see their belongings again any time soon because of the war sanctions. A draft law in Russia suggests that there will be years of legal disputes over jets worth ten billion US dollars. Western sanctions against Russia over the Ukraine war are forcing Western leasing companies to terminate contracts with Russian airlines by March 28. But how they get the rental properties is unclear.
According to the draft by the Russian Ministry of Transport, if the contract is terminated, a special government commission will decide whether the aircraft can be returned or whether it must remain in Russia. The termination of cross-border contracts and the return of aircraft is governed by the Cape Town International Convention. This would enable an orderly process for returning jets.
But the Russian bill represents a breach of that agreement, said Eddy Pieniazek, head of analytics at British aviation consultancy Ishka. According to Russia, leasing installments are to be paid in rubles instead of in the contract currency, dollars, which should reduce the sum in view of the massive fall in the Russian currency.
Political risk overlooked
In total, almost 780 aircraft are leased by Russian airlines, of which 515 are owned by foreign lessors. So far, the Russian airlines have not returned the machines, explained aviation expert Bertrand Grabowski. Only a handful of planes who were abroad were secured. The Russian market and the leading airline Aeroflot were considered very reliable. But the political risk was hidden. The aircraft leasing industry, which owns more than half of the world’s aircraft worth around $300 billion, faces a massive loss.
According to industry information, the Dublin-based market leader AerCap bears the greatest risk with 152 aircraft leased in Russia. The company did not comment on the consequences of the legislative plans. It recently said about 5 percent of its fleet by net book value was leased to Russian airlines. Companies are likely to delay asset write-downs until it is clear how much they will lose and whether they will be compensated. It is questionable whether insurance companies will step in with war risk policies.
Experts expect a protracted legal dispute about it. According to the Chinese aircraft rental company BOC Aviation, which also affects around five percent of its assets, insurance companies are gradually canceling certain elements of policies relating to leasing aircraft in Russia. “This is a complex and rapidly evolving situation that we are closely monitoring,” added BOC. “Overall it’s a very bleak picture,” said consultant Jerrold Lundquist. That will keep the courts busy forever.